Controversy in Ecuador over corruption in Petrochina oil presales

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A new oil scandal has erupted in Ecuador. First, the Panama Papers forced the Public Prosecutor to act against Álex Bravo, the former manager of State oil company Petroecuador, who is currently being detained for allegedly benefiting from contracts with Petroecuador via offshore companies owned by him and members of his family. Now, a new revelation by the newspaper Diario El Universo has rekindled the controversy.

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Documents leaked from Panamanian law firm Mossack Fonseca (MF) reveal that the first oil presale by Petroecuador to Petrochina International Co. Ltd., in July 2009, included commissions for private companies at a rate of one dollar per barrel, totaling $70 million.

The Ecuadorians who assisted in negotiating the presale, Vidal Enrique Cadena Marín and Jaime Baquerizo Escobar, were involved with these private companies.

With this first presale, Petrochina delivered a $1 billion credit to Petroecuador over a two-year period and a 7.25% annual interest rate. In return, Petroecuador promised to deliver 69.12 million barrels during the same period, at a rate of 2.88 million barrels per month.

According to sketches on MF letterhead paper, Petroecuador provided crude to Petrochina, which in turn delivered it to Castor Petroleum Ltd., from where it was passed to the multinational oil company Gunvor Group Ltd.

According to the MF notes, Castor Petroleum paid a ‘one-time’ commission of one dollar per barrel to the Ecuadorians via Waterway Petroleum Ltd. This company transports oil and is also part of the Gunvor Group.

The diagrams show that the payment was received through an offshore company, Eston Trading Ltd., based in Nevada, which was administered and represented by MF at the request of Jaime Escobar Baquerizo. This one-dollar commission is shown in invoices issued by Eston Trading.

The brothers Jaime and Juan Baquerizo Escobar are oil contractors who manage Oil Services & Solutions S.A. (OSS). According to the Panama Papers, Juan Baquerizo’s company, Arkdale Investments (Bahamas), signed an agreement for an offshore Panamanian firm, represented by the former manager of Petroecuador Alex Bravo, to be its agent in South America. Between 2011 and 2016, OSS benefited from 15 contracts with Petroecuador worth $30.3 million.

According to MF records, the bill for establishing Eston Trading Ltd. was paid in July 2008 by Naparina S.A. Corp. through its HSBC Bank account in New York. Naparina Corp. is the flagship company of Vidal Enrique Cadena Marín, who is involved in other controversies. Furthermore, former Congressmember Cléver Jimenez and his advisor Fernando Villavicencio have denounced Cadena as the trader behind the oil presales to Petrochina.

In July 2009, almost a year after the creation of Eston Trading, the President of Petroecuador, Vice Admiral Luis Jaramillo Arias, signed the contract 2009-433 for the presale of crude oil, along with Petrochina representative Zhang Tao. This deal was part of a strategic alliance agreement made between the two oil companies in January of that year. The agreement had a duration of five years and may be automatically renewed. The full document has not been made public.

One dollar per barrel
According to the Panama Papers, part of the Eston Trading Ltd. commission was distributed to two Ecuadorian companies: OSS, belonging to the Baquerizo brothers; and Naparina Corp. S.A., belonging to Enrique Cadena Marín.

The majority of the commission, 80 cents per dollar, went to Livingston Financial Corp., a firm based in Dubai (UAE). The Mossack Fonseca notes indicate that Baquerizo and Cadena are also beneficiaries of Livingston, using this firm to receive commissions in the United States.

Eston Trading was administered by the Mossfon Trust, whose executives were responsible for managing its account at the Panamanian Housing Bank (Banvivienda). The Panama Papers include details of an Eston Trading shareholders meeting on April 20, 2009, during which Jaime Baquerizo Escobar was authorized to conduct trade agreements, but only for one month. This authorization would allow Baquerizo to sign an agreement for Livingston Financial Corp. to be his ‘agent’, in exchange for a commission of 80 cents per barrel of oil.

Also, Eston was to sign another agreement with Waterway Petroleum Ltd. to justify the payment of one dollar per barrel. These documents were never formalized, but Baquerizo presented a draft with a representative of Waterway Petroleum, Néstor Tarira; another document included in the Panama Papers.

Néstor Tarira is the manager and partner of a bar in Guayaquil, whose corporate name is Galascorp, a company at which Jaime Baquerizo was a partner until 2010. Tarira also appeared as the marketing manager of Eston Trading Limited S.A. The latter was dissolved in 2010 by the Ecuadorian Superintendency of Companies for not submitting balance sheets since its inception.

Baquerizo did not present evidence establishing Navarrete or Tarira as business representatives of Livingston or Waterway.

Executives from MF and Banvivienda, where Eston held a savings account, became worried and insisted on formalizing the documents. Baquerizo had assured them that the deal involved the sale of oil equipment, but not the brokerage of commission for crude.

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